Dow Jones futures trended higher overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally had another weak session with Apple (AAPL) and Exxon Mobile (XOM) while breaking below key levels Amazon.com (AMZN) and Tesla (TSLA) are beginning to move towards bear market lows.
The S&P 500 and other key indices tested or undercut key levels, erasing last Wednesday’s big gain following Fed Chair Jerome Powell’s speech.
This stock market rally had several large daily gains followed by pullbacks. This has made it harder for stocks with buy signals to make headway. It’s not a good time to add exposure, but investors should look for stocks that are gaining traction.
United Rents (URI), United Health Group (UNH) and United Airlines (UAL) are all traded near buy points.
UAL stock is on the IBD Leaderboard while URI stock is on the Leaderboard Watchlist. United Airlines, Charles Schwab and UNH shares are in the IBD 50. United Rentals was Tuesday’s IBD stock of the day.
Dow Jones futures today
Dow Jones futures were up 0.1% from fair value. S&P 500 futures were up 0.15% and Nasdaq 100 futures were up 0.2%.
The 10-year government bond yield rose 3 basis points to 3.54%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally quickly tailed off after Tuesday’s open and continued to trend lower throughout the day before paring losses slightly towards the close.
The Dow Jones Industrial Average fell 1% in trading on Tuesday. The S&P 500 index fell 1.4%. The Nasdaq Composite plunged 2%. Small-cap Russell 2000 fell 1.5%.
Apple stock, a member of the Dow Jones, S&P 500 and Nasdaq Composite, slipped 2.5% to 142.91, back below its 50-day moving average. XOM stock is down 2.8%, also below its 50-day moving average and below a buy point. Exxon stock struggles as oil, gasoline and natural gas prices plummet.
Amazon shares fell 3% to 88.25, nearing their Nov. 9 bear low of 85.87. Tesla shares fell 1.4% to 179.82, from intraday lows but after falling 6.4% on Monday. TSLA is headed for a 52-week low but still has some way to go before falling to that 166.19 level.
US crude prices fell 3.5% to $74.25 a barrel.
The 10-year government bond yield fell 9 basis points to 3.51%, back close to its lowest level since September 20.
The inverse relationship of the stock market to government bond yields could collapse. Lower 10-year government bond yields may increasingly reflect rising recession risks versus falling inflationary pressures. The ever-inverting yield curve also points to recession concerns.
Among the top technology ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 1.7%. The VanEck Vectors Semiconductor ETF (SMH) fell 2.2%.
The SPDR S&P Metals & Mining ETF (XME) was modestly up 0.25% and the Global X US Infrastructure Development ETF (PAVE) was modestly down 0.3%. The US Global Jets ETF (JETS) held up. SPDR S&P Homebuilders ETF (XHB) fell 1.4%. The Energy Select SPDR ETF (XLE) slumped 2.6% and the Financial Select SPDR ETF (XLF) 0.9%. The Health Care Select Sector SPDR Fund (XLV) fell 0.8%.
ARK Innovation ETF (ARKK) is down 4% and ARK Genomics ETF (ARKG) is down 3%, reflecting more speculative story stocks. Tesla stock is a key position in Ark Invest’s ETFs.
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Stocks near buy points
United Rentals stock rose 0.5% to 347.29, just above the 21-day moving average. URI stock has a handle buy point of 368.04 from a consolidation stretching back to November 2021. Breaking the handle’s downtrend could provide an early entry. Several heavy equipment games including deer (DE), Caterpillar (CAT) and Titan machines (TITN), also look strong.
UNH shares rose 0.8% to 539.32. The Dow Jones giant has a buy point of 558.20 from a flat base next to a cup with handle consolidation.
UAL shares are up 2% to 45.92, just above the 45.67 Cup with Henkel buy point, according to MarketSmith analysis. Some other airline and travel stocks are looking strong.
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Analysis of the market rally
The stock market rally continues a frustrating trend of jumping four steps forward and then bouncing back over the next few days.
Major indices have fallen solidly for two straight sessions, erasing or undercutting big gains at Fed Chair Jerome Powell’s speech last Wednesday.
The S&P 500 Index, which fell back below the 200-day moving average on Monday, extended losses on Tuesday to undercut the 21-day moving average. The Russell 2000, which fell below the 200-day and 21-day moving average, slipped to its lowest close since November 9, with the 50-day moving average back into play.
The S&P MidCap 400 closed below its 21-day moving average for the first time since October 20 and pulled back to test its 200-day moving average.
The Dow Jones, which has been leading the market rally, fell below its 21-day moving average for the first time since October 14 but is well above its 200-day moving average.
The laggard Nasdaq has undercut its 21-day moving average and is once again approaching its 50-day moving average, just above the 11,000 mark.
All of these indices closed at their worst levels since Oct. 9, just before the Oct. 10 gap-up in October’s CPI inflation report.
Last Wednesday’s big market gains were puzzling at the time because Fed Chair Powell said nothing particularly different or dovish. Major indexes held up on Friday, with government bond yields ultimately ending lower, though the hot jobs report was even more enigmatic.
But the technical picture is known.
Since the stock market rally began on October 13, the major indices have recorded several large one-day gains – such as October 28 and November 30. But then they soon fell behind and wiped out most, all or more than all of that big win.
Just as major indices were making higher highs and leading stocks were flashing buy signals, the market rally began to fade.
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Each time so far, the market rally has eventually recovered, making higher highs in the process. But that doesn’t mean it will happen this time. More importantly, this doesn’t mean your stocks will recover.
Until the S&P 500 moves decisively above the 200-day moving average, investors should be cautious about adding exposure. If the Nasdaq and Russell 2000 fall below their 50-day moving average and the S&P 500 tests its October highs, there would be signs that exposure should be reduced further.
Also note that the November CPI inflation report is due out on December 13th, with the Fed’s rate hike at the end of the year and the Powell press conference the following day. These big events could be the catalyst for a market rally either up or down.
Investors should therefore be ready to act. That means having watchlists ready, but also staying committed and flexible.
Read The Big Picture every day to keep up to date with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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